Linklaters’ predictions for the private equity sectors in 2013

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Ian Bagshaw, co-head of Linklaters’ private equity sector group sees significant activity within the private equity European community in 2013 as the PE industry faces up to its evolving landscape five years on from the “crunch”…

Activity will be a mix of new money, restructurings and exits in part to support and build a track record for wider fundraisings.

As a general theme, a clear distinction will develop between the “haves” and “have not’s” within the European community in part dependent on the ability to raise “new funds”. The long expected shake up of the European industry will start to become clearer as “brand” funds struggle to meet targets and/or first closes.

Leverage finance will continue to be in short supply for anything other than the strongest European LBO credits. This will allow alternative credit providers to support sponsors as well as making high yield the financing of choice for mid-market deals and above. Hence the high yield market bubble not exploding is key to the upper end of deals and recaps in 2013.

Restructuring activity for sponsors will remain firmly on the agenda as the “extensions” of credit facilities for “golden era” buyouts are up for renewal. Managing these situations will be a key issue (as it goes to the heart of the sponsors fundraising track record), providing more opportunity for alternative credit providers and “loan to own” sponsors to continue the growth of their deal pipeline in 2013.

There will be continued partnering between corporates and financial sponsors as corporates look to offload non-core assets to sponsors as a way of a partial or full exit and more relevant corporates become the “buyer” of choice for sponsors looking to sell assets – in particular in healthcare and industrials.

An increased regulatory focus on the industry will mean financial sponsors will need to move risk management to the centre of their business as houses cope with the dual demands of government regulation and their investors requirements.

The evolving tax regime will mean that sponsors need to keep an eye on structures they have in place (especially shareholder debt, deductions and capital gains tax) as European governments look to raise taxes in cash starved environments and cut down on their tax mitigation structuring.